Wage Growth the Key to House-buying Power in 2020, According to First American Real House Price Index
SANTA ANA, Calif.--(BUSINESS WIRE)--Dec 20, 2019--
First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the October 2019 First American Real House Price Index (RHPI). The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.
October 2019 Real House Price Index
Chief Economist Analysis: Real House Prices Down 7.9 Percent Year Over Year
“Affordability improved in October as two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, modestly swung in favor of increased affordability relative to one year ago,” said Mark Fleming, chief economist at First American. “The 30-year, fixed-rate mortgage fell by 1.1 percentage points and household income increased 2.6 percent compared with October 2018. Rising household income and declining mortgage rates each boost consumer house-buying power.
“While home buyers benefited from the increase in house-buying power driven by lower rates and household income growth, they also face greater competition for homes as increased house-buying power has also fueled greater demand,” said Fleming. “As demand increases for a scarce (limited or low supply) good, prices will rise faster. The housing market saw this dynamic play out in October as nominal house price appreciation accelerated relative to a year ago.
“However, even as nominal house prices have gained momentum because of the supply and demand imbalance, real house prices (RHPI) actually declined by 7.9 percent thanks to the benefit of increased buying power,” said Fleming. “The increase in house-buying power was more than sufficient to offset nominal house price gains. In order to understand these dynamics, let’s break down the three forces driving the RHPI, and what they signal for 2020.
Rising Income + Low Mortgage Rates = Faster House Price Appreciation
More Millennial Buyers on the Way in 2020
“The bulk of the millennial generation, America’s largest generation, will turn 30 next year, entering their prime home-buying years. This generation of buyers grew up in an era of sub-4 percent mortgage rates and also have higher household incomes than their predecessors,” said Fleming. “Financial readiness combined with a heightened appetite for homeownership will power continued demand for homes in 2020.
“Yet, there is not enough supply to meet the growing demand, so we expect faster house price appreciation, a dynamic we’re already experiencing in the housing market today,” said Fleming. “While rising house-buying power, largely driven by declining mortgage rates, made monthly mortgage payments more manageable in 2019, any further increases in house-buying power will likely rest on the labor market and continued household income growth in 2020.”
October Real House Price State Highlights
October 2019 Real House Price Local Market Highlights
The next release of the First American Real House Price Index will take place the week of January 27, 2020 for November 2019 data.
The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2019 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; banking, trust and wealth management services; and other related products and services. With total revenue of $5.7 billion in 2018, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2019, First American was named to the Fortune 100 Best Companies to Work For ® list for the fourth consecutive year. More information about the company can be found at www.firstam.com.
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SOURCE: First American Financial Corporation
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PUB: 12/20/2019 07:00 AM/DISC: 12/20/2019 07:01 AM